In the prior, related applications, such as PCT International Application No. PCT/US13/59558, Applicant disclosed various innovations related to electronic trading and computer-implemented platforms/infrastructure to facilitate improvements in electronic trading. One goal of such innovations is to reduce or deter predatory trading behavior so as to maintain a fair marketplace for all participants big or small. In particular, it is one object of those innovations and the present invention to minimize or eliminate information leakage and the use of the same in unfair trading strategies such as order book arbitrage or latency arbitrage.
For example, as previously explained, in the U.S. there is no such thing as a single national security exchange in a single location—instead, a number of security exchanges exist and operate at different locations. Since numerous trades are executed at some or all of these exchanges at any given moment and it takes time for market data updates to propagate among the exchanges, the order books of all the exchanges cannot be perfectly synchronized and updated at all times. High-speed traders can take advantage of quote instabilities, when momentary discrepancies exist among order books of different exchanges for the same security, to conduct trades at stale price points and therefore reap benefits to the disadvantage of other market participants. Furthermore, these momentary discrepancies can be anticipated before they actually occur by, for example, receiving and processing real-time low-latency market data feeds that permit a high-speed market participant to understand developing conditions that typically precede, or are characteristic, of quote instability.
For another example, the conventional approaches by which order books are managed could also lead to information leakage. High-speed traders can use a number of tactics such as small orders or non-firm orders (e.g., “indications of interest,” “discretionary orders,” “negotiable orders,” “non-firm quotations,” or “immediate-or-cancel orders”) to probe the order books of the exchanges. Once a trade confirmation or other feedback from an exchange indicates the existence of a large, hidden or non-displayed order, the high-speed traders could place additional trades to take advantage of such order.
Other problems may also exist with existing electronic trading systems.